The surge in activity includes project approvals as well as project transfers to technically experienced and financially capable developers, which is a positive trend, but whether it can fulfill the nation’s renewable energy potential remains to be seen.
Among the significant policy developments that have taken place of late is the temporary suspension of approval for additional solar power projects (SPPs).
The Office of the Government has issued Notice No. 174 requesting the Ministry of Industry and Trade (MOIT) to suspend approval of additional SPPs pending, in turn, the approval of a national master plan for the development of solar power (Solar PDP).
The MOIT has been tasked with formulating and presenting a new Solar PDP to the Prime Minister.
Notice 174 states that over 70 solar power projects with a total registered capacity of 3GW approx have been approved within relevant master plans (noting a planned capacity of 850MW for up to 2020 under the Power development plan 7).
Pending passage of the new master plan for solar power development, only projects that have been appraised by the MOIT (50MW or less) and those that have already been presented to the PM (above 50MW) will be considered for approval.
Other solar projects, including those being appraised by the MOIT, regardless of their registered capacity, shall be deferred and considered for inclusion in the national solar master plan.
The impact of this suspension has been seen in the market, where the selling side has tended to mandate higher prices for their project development efforts. It has also reminded market players to be prepared to accommodate potential policy uncertainties, twists and turns in their dealings.
Another area of primary interest in the sector has been in the Feed in Tariff (FIT) deadline for SPPs.
To further promote socio-economic development, Deputy PM Vuong Dinh Hue has instructed the Ministry of Planning and Investment (MPI) to draft a Government resolution proposing a special regime and policy, including a potential extension of application of Decision No.11/2017 (Decision 11) on FIT for SPPs in Ninh Thuan Province.
The draft document (No. 4545 dated July 4, 2018) submitted by the MPI to the Government Office has been reviewed.
The Government Office has since issued a notification (No. 7108 dated 26/07/2018) saying Decision 11, which provides for a FIT of US cents 9.35/kWh, will not be extended.
However, a PM Decision on extension of commercial operation date (COD) till 2020 for Ninh Thuan province up to a capacity of 2000 MW (AC) is expected.
In order to support the next policy consideration, the MOIT has issued a document (Official Letter 5735) requesting relevant Government bodies and their units to assign a cadre to participate in the working group to draft a decision amending Decision 11 and another draft decision to develop bidding mechanisms for the solar power sector. These are to be submitted to the PM for his consideration.
It is to be noted that post June 2019 solar power projects may expect a lower FIT rate of approx 7.6 US cents/kWh. The authorities are further considering formulating a special provincial plan to support investments in the two key provinces of Ninh Thuan and Binh Thuan, which are attracting huge investor interest for solar power projects.
This guideline on the application of Decision 11’s FIT, together with the potential for system overload if the transmission system is not updated in time, will present a significant technical challenge for Vietnam Electricity (EVN) and MOIT in accommodating the policy.
This will also be true of piloting direct Power Purchase Agreements (PPAs) and upcoming policy changes.
In relation to rooftop solar power projects, national utility EVN, the sole power distributor in the country, issued a document (EVN Official Letter 1337) on March 21, 2018 guiding the temporary implementation scheme for rooftop SPPs with capacities equal to or less than 1MW, pending the issuance of an official guidance document by the MOIT and the Ministry of Finance (MOF) on payment and invoicing structure.
The prevailing regulations provide for a net-metering scheme for rooftop SPPs. Under this, credit for surplus electricity (over direct consumption) generated can be transferred to subsequent payment cycles, and the excess electricity generated can be sold to EVN at the rate mentioned in the PPA signed by the seller and EVN either at the end of the relevant year or upon termination of the agreement.
The MOIT Circular 16, issued last year, requires a solar power generator, as the seller, to enter into an appendix to the Model PPA in place with EVN or its authorized subsidiary. The model appendix is provided under Annexure 3.2 of Circular 16.
However, according to EVN OL 1337, the appendix will not be applied until the MOIT and the MOF issue further guidance on the finalization, payment scheme and invoicing mechanism for such net-metering purposes.
Under current regulations, EVN is required to offtake the entire power output of solar and wind power projects.
However, EVN already anticipates significant challenges to honoring this requirement, especially in areas with high concentration of solar and wind power projects with limited transmission capacity, even with the proposed system update expected by the end of 2019.
EVN has reported such challenges to the MOIT, and the latter has issued a document (OL 3943 dated May 21, 2018) that requires the following:
- EVN to instruct its affiliates to formulate grid connection agreements (GCA) for projects that may be able to dispatch power to the national transmission system without causing system overload;
- EVN to review and consider (i) dispatch capacity of the system, and (ii) potential conditional GCA for projects that may cause system overload. Developers and operators may be required to reduce power output and suspend operation of their plants as requested by EVN’s operators to avoid system overload and comply with technical requirements under MOIT’s Circular 30/2015 and Circular 25/2016.
- EVN to prepare and present to MOIT in the third quarter of 2018 a plan for investment in a transmission system able to take dispatch of renewable power projects after 2020.
These MOIT instructions may result in potential deviations from the model power purchase agreements. EVN’s offtake obligation and such deviation would certainly add another significant item to the list of bankability issues for projects without executed PPAs and GCAs.
It is expected that such issues would be further considered in the process of amending Decision 11 and related regulations.
Stakeholders in projects with executed PPAs and GCA would be well advised to ensure closer monitoring and coordination with EVN to minimize impacts and disruptions.
Increasing wind power FIT
The MOIT has proposed to the PM an amendment (Draft decision) to Decision 37/2011 to increase FIT for wind power projects from the current 7.8 US cents/kWh (onshore).
The amended draft decision will increase the FIT equivalent to 8.77 US cents/kWh (onshore) and 9.97 US cents/kWh (offshore), based on the SBV"s exchange rate of $1 equivalent to VND21,896 (announced on January 4, 2016) and subject to fluctuation.
This potential increase is an effort to fix one of the most notable issues with wind power development regulations in Vietnam. The FIT under the draft decision shall apply to projects achieving COD before January 1, 2021.
To sum up, although Vietnam has an advantage in terms of abundant resources, whether or not it will be able to tap its full potential remains to be seen.
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